Zee’s TEN Sports sale: good riddance to the white elephant
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Zee Entertainment Enterprises Ltd’s sports broadcasting business (TEN Sports) has been a drag for a long time now. The business has posted operating losses continuously for the last seven years at least.
Over FY2010-2016, cumulative sports business Ebitda losses stood at Rs.621 crore. For FY16, revenue and Ebitda loss stood at Rs.631 crore and Rs.35 crore, respectively. Ebitda is earnings before interest, tax, depreciation and amortization.
Ambit Capital Pvt. Ltd sums it up aptly: “Sports has been a white elephant for Zee.”
Given this scenario, Zee’s announcement that it will sell TEN Sports to Sony Pictures Network in an all-cash deal for $385 million, or about Rs.2,600 crore, is more than welcome. The deal translates to about four times the revenues of the sports business in FY16.
It is difficult to value the company’s sports business considering there wasn’t any visibility of sustainable profits or break-even, pointed out an analyst. “Nonetheless, value of sports broadcasting business resides entirely in the franchise/brand (TEN Sports in this case),” he added.
Zee had acquired TEN Sports for $107 million in tranches. The TEN Sports portfolio includes TEN 1, TEN 1 HD, TEN 2, TEN 3, TEN Golf HD, TEN Cricket and TEN Sports.
The Zee stock reacted positively, ending 2% higher on BSE on Wednesday.
According to Punit Goenka, managing director and chief executive of Zee, there won’t be much impact for this fiscal year, as it will take some time to complete the process. But absence of sports business losses should help the financials for FY18. The company’s Ebitda margin is expected to improve and that should eventually help core profits.
Zee’s consolidated Ebitda margin for FY16 was 25.8%. Analysts expect a 300-400 basis point improvement in the measure excluding the sports portfolio. A basis point is one-hundredth of a percentage point.
Additionally, it helps that the performance of the regional channels has been robust, making Zee’s overall channel bouquet strong even without sports channels.
“Bearish arguments of weakening bargaining power with distribution platforms are unfounded given sub-par cricket viewership of Zee’s sports channels,” wrote Vivekanand Subbaraman in an Ambit Capital report on Tuesday.
Meanwhile, the company has performed well on the advertising revenues front in recent quarters including the last quarter. For this year, Zee expects to outperform industry advertisement growth.
So far this fiscal year, Zee shares have outperformed the benchmark Sensex. Currently, one share trades at 41 times its estimated earnings for this fiscal year. That prices in most of the upside.